Renowned gold expert James Turk says prolonged gold backwardation like we are seeing now, where the spot price is higher than the future price, has never happened before. Turk contends, “No, never, and I am a student of monetary history as well, and I have never seen it happen like this in monetary history. – James Turk on Greg Hunter’s USAWatchdog

The signs are everywhere. We are seeing extreme “backwardation” in gold on the LBMA. Backwardation occurs when the spot price is higher than the future price for LBMA forward contracts. It means that buyers of gold are willing to pay more for gold for immediate delivery than pay a lower price to receive delivery in the future (30-day, 60-day, etc). It means that physical gold buyers do not trust the ability of the market to delivery physical gold in the future.

It is an unmistakable sign of physical gold shortages.

Not surprisingly, the LBMA suspended reporting the gold forward rate which was the best indicator of physical gold shortages in London, but we can still get reports onphysical market conditions from London gold market participants, like James Turk.

To reinforce this information, Bill Murphy reported his latest conversation with his LBMA trader source in London (www.lemetropolecafe.com):

The essence of it is more confirmation that the BIG MONEY is buying gold and silver down here at these price levels.More confirmation that silver is extremely difficult to buy in size. It takes two to four weeks for delivery. What is new is that buying gold in size is now becoming a thing … for our source says it now takes two weeks to buy in size.

Perhaps the most visible sign is the removal of gold from the GLD ETF. The only way gold is removed from the Trust is when an Approved Participant bank redeems 100k share block in exchange for delivery of bars from the Trust. – (source: John Titus of the “Best Evidence” Youtube channel, edits are mine).

Make no mistake about it, the bullion banks often can borrow GLD shares to scrape together 100k share lots in order to redeem gold. Or they can smash the gold price with paper and force weak holders of GLD to sell shares in the hands of the bullion banks. In the last two weeks the short interest in GLD has soared 49% from 9.4 million shares to 14 million. That represents roughly 46 tonnes.

The ongoing raid of GLD gold is perhaps the most direct evidence that the Central Banks and their bullion bank agents are struggling to find gold in which to deliver into Asia. But speaking of which, something interesting is occurring on the Shanghai gold exchange. In the last three days, 298 tonnes of gold have been delivered into the SGE. While everyone monitors the amount of gold withdrawn from the SGE, the amount of gold flowing in to the SGE is just as important. This is by far the most amount of gold that has been delivered into the SGE that I can recall.

I get my data from John Brimelow’s “Gold Jottings” report, which is invaluable for tracking the physical gold market outside of London. He had this to say about the stunning flow of gold into China over the last three days:

Delivery Volume was 90.444 tonnes (Wednesday 112.454 tonnes) and open interest surged 48.374 tonnes (11.26%) to 477.920 tonnes. Since last Friday Shanghai open interest has risen 18.68%. Something is happening in gold in China. What is not immediately apparent.

Finally, to further reinforce the evidence of physical market shortages, we can monitor the gold lease rates, published by Kitco everyday. I sourced this graph from Jesse’s Cafe Americain, who sourced it from Sharelynx.

Gold lease rates spike up like this when there is heavy demand from bullion banks to borrow physical gold from Central Banks in order to sell the gold into the market or deliver gold that can’t be readily procured in adequate quantities in the spot market. It is one of the most visible signs that there is a shortage of physical gold on the market.

To be sure, the unprecedented degree of manipulation of the gold price in the paper gold market reflects a serious desperation by the Central Banks and western Governments to cover up an enormous disaster fomenting beneath the heavily applied of veneer of “things are so good we need to raise interest rates in September” mantra. In fact, the specific reason to keep a lid on the price of gold and silver is to enable the Central Banks to maintain a zero interest rate policy.

The truth is, the Fed can’t afford to raise interest rates and anyone with two brain cells to rub together and a willingness to look at the truth knows that the Fed is trapped – unless it wants to crash the system for some reason.

We note that physical off-take of gold is spiking higher, with Reuters reporting yesterday that the South Koreans are buying gold in record sums while the US Mint reports that sales of gold coins in July were nearly 5 times what they were a year ago. – John Brimelow, “Gold Jottings” report.